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Another One Bites the Dust: Reader’s Digest in Bankruptcy

Reader’s Digest, that magazine many of us most associate with the waiting room of a dental office, filed for Chapter 11 bankruptcy yesterday, the latest casualty of the worst advertising market in generations.

The Great Recession has hit the advertising industry particularly hard, and by association, the print media industry. Traditional newspapers and magazines make most of their money from advertising, not subscriptions or news stand sales. So, when advertisers quit paying…your favorite magazine or local paper stops making money.

The recession has exacerbated a trend that was already well underway. Internet news sites and classifieds (like Craigslist) have been gradually chipping away at the core consumer markets for newspapers for years. In an age in which information can be blasted around the world instantly, it is simply not economical or sensible to print, sort, and deliver untold tons of paper to the doorsteps of American homes. And it’s not just a problem for local dailies. The venerable Christian Science Monitor — considered one of the best newspapers in the world for its international coverage — decided to cancel its print edition in 2008 because its traditional model as no longer viable– and this was before the financial crisis fully hit late last year.

Several big-city newspapers are also in danger of outright closing. The Wall Street Journal published a list of the top ten papers most likely to go out of business, reproduced below:

1. The Philadelphia Daily News
2. The Minneapolis Star Tribune
3. The Miami Herald
4. The Detroit News
5. The Boston Globe
6. The San Francisco Chronicle
7. The Chicago Sun-Times
8. The New York Daily News
9. The Fort Worth Star-Telegram
10. The Cleveland Plain Dealer

Conspicuously absent are the Wall Street Journal and the New York Times. These two giants, with their broad, international readership, are weathering this storm better than their smaller rivals. They are hurting, of course. But they will survive. The ten on the list above are not likely to be so lucky.

It will be interesting to see how this industry develops. The local paper, for so long a valuable source of community news, is now an obsolete business. In a given local paper, most of the national and international stories will be AP or Reuters articles — the kind that you can get for free on Yahoo or Google — as even during the best of times, a smaller paper would not have had the budget for original reporting on that scale. This means that the local paper will have to be reinvented as an aggregator for local news — things like high school football scores, obituaries, local court cases, etc. Ultimately, it means a leaner industry with smaller revenues and, of course, smaller expenses. This means that biggest expenses — printing and home delivery — will be phased out.

Can the local paper survive as nothing more than “localpaper.com”? I have my doubts, but some might prove me wrong. A more likely scenario might be that a two-tier media system develops in which the big, international papers — The Wall Street Journal, New York Times, Financial Times, etc — dominate the mass media and a combination of local-interest websites and blogs dominate the lower end. Local papers — in print or online — will likely continue to slide into irrelevance.

One thing is certain, the financial crisis sped up the process, so we may find out much sooner than I originally thought.

Charles Sizemore, CFA

Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy